China's $1.2 trillion cash reserves

With $1.2 trillion in reserves, most of it in dollar-backed assets, China plans to launch the world's largest investment fund. It could play havoc with the U.S. economy and the rest of the world.

China, Long recognized as the world's production factory, is earning a new distinction: America's banker according to Fortune Magazine Senior Writer. As it continues to suck in foreign investment and crank out exports, the world's fastest-growing economy is piling up foreign currency, mostly dollars, at an unbelievable pace.

In April, China's central bank stunned economists with the disclosure that, in the first three months of the year, China had added $136 billion to its official foreign-currency reserves, more than double the increase in the previous quarter and more than any developing nations' national reserves. The influx boosted China's foreign reserves to $1.2 trillion - an Everest of money that towers over reserves held by any other nation.

What is China going to do with all those money?

Chinese press reported that the fund will be modeled on Temasek, the Singaporean government's investment arm, and entrusted with as much as $300 billion. That's three times the size of Temasek and ten times larger than the world's largest hedge fund. With that much under management, the fund could buy up Wal-Mart and have enough left over to pick up General Motors and Ford.

Some predicted that China may use the cash to finance state-owned resource giants like Sinopec or CNOOC to secure oil, gas, coal and other raw materials abroad. Whatever it maybe, China is in great position to do wonders but its sad to say that with so much money, I wonder why Beijing can't use the money to build schools and hospitals.

While in the eyes of the economist and the rest of the world, China has grown phenomenally but personally, there is a huge social and welfare gap that needs to be narrowed. I certainly hope that the Chinese government will put this money to good use.